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Why the California LCFS Won’t Become a Global Norm

12.12.16 | Blog | By:

Lux’s view, based on a study it just released and is selling, is that the California Low Carbon Fuel Standard (LCFS) may become a global norm for government policies to meet GHG emissions reduction goals. If that happens, the “winners” will be renewable diesel, conventional electricity and renewable electricity because of their low carbon intensity, as the following chart shows (the quality is not great, apologies for that). The “losers” will be ethanol and hydrogen.

Major findings in the study included the following:

  • California is a model. Currently, California uses seven different low-carbon fuels derived from 26 different feedstocks, making up 11.3% of its fuel consumption. Under the state’s new regulations, growth of petroleum consumption has slowed to a mere 0.5% quarterly, while low-carbon fuels grew at 1.6% quarterly.
  • Waste oil halves biodiesel’s carbon intensity. In ideal conditions, biodiesel derived from fats, oil and grease (FOG), has the potential to cut carbon intensity by half. Plenty of FOG-derived biodiesel is projected to be available – up to 2.5 billion gallons per year – and even though processing poor quality waste adds to cost, FOG-based diesel remains a significant opportunity.
  • Carbon negative fuels, today. CARB LCFS’s well-to-wheel analysis of biogas shows that the long-sought carbon-negative fuel is commercially viable today. With California’s large transportation fuel market as a draw, improved biogas technologies as well as similar carbon-negative fuel pathways will emerge to expedite carbon emissions reduction.

I haven’t reviewed the study so I don’t have a full understanding of the assumptions and analysis that underlie the conclusions. As I’ve written about, Canada will follow British Columbia and California and set a nationwide LCFS. The Renewable Energy Directive in Europe, which is currently being amended/expanded is a kind of LCFS. And this week, Brazilian ethanol producers appeared to ask the government to consider some kind of LCFS-style regulation to help stimulate demand for their product domestically. (I will be investigating this further for clients in the Future Fuels Outlook service.) But if we look at the countries that have or intend to set biofuel and renewable transport obligations, shown in the figure below, we notice that many of these countries are emerging economies.  In fact, most of them are.

What does this really mean? In my experience, these emerging economies will most likely stay the course and set/maintain biofuels mandates. Most of these countries are not major GHG emitters and they have other goals that are as (or equally) important aside from mitigating GHGs from transport that include economic development (both in agriculture and in the creation of a biofuels industry), job creation and diversifying or creating energy security as many are net fossil fuel importers. Moreover, most do not have the governmental resources or capacity to implement an intensive program like the LCFS. For many, simply implementing a straightforward biofuels mandate that works has been challenging enough.

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